Wednesday, March 31, 2021

Modern Monetary Theory For Conservatives?

The American Conservative, of all places, has a pro-big spending, pro-money printing essay in its latest edition. 

Jonathan Culbreath, author of the piece Modern Monetary Theory For Conservatives, writes:

As predicted, conservatives have responded to the latest $1.9 trillion stimulus package with outrage about our growing national debt, and the taxes that will be required from our children and grandchildren to pay for it. While there may be many things to criticize in the package, it is significant that despite the fact the defense of the family is supposed to be a hallmark of conservative politics, not even a generous family policy embodied in an expanded Child Tax Credit could assuage many conservatives of their mortal fear of government spending.

This reluctance to accept government expenditure can be explained by many factors, some of them ideological and political. But one important and somewhat understudied factor is a faulty and outdated economic theory. Without defending all the details of the latest stimulus package, conservatives should re-examine the economics that underlie the tendency on the right to condemn any instance of large-scale government spending. On the basis of such a re-examination, the policy conversation could then shift away from whether government spending is economically justifiable and towards what kinds of spending are productive and worthwhile.

In her recent book The Deficit Myth, economist Stephanie Kelton offers a compelling challenge to the common idea that deficit spending is essentially unsustainable. Kelton is one of the foremost proponents of an increasingly influential school of economic thought known as “Modern Monetary Theory,” or MMT. According to MMT, no sovereign state that issues its own currency can ever run out of money. This is because it simply “prints” its money in order to pay for whatever operations it deems necessary. The government doesn’t need to go out and find the money it needs for such spending; it needs no fundraisers, no sales, and not even taxes, to fund its operations. It simply spends into existence the money that it needs for its operations.

The theory is intended as a rebuttal to common objections against deficit spending, which is when the government spends more money into the economy than it takes out in taxes. Every time the government puts out a plan to spend large amounts of money on any project, whether it is infrastructure, education, healthcare, or a stimulus package, the constant refrain is “how will you pay for it?” And the expected answer is always “with taxes of course!”—whether taxes now or taxes upon future generations. According to MMT, this is entirely the wrong way to think about it, and a few public figures, even including conservatives like Tucker Carlson, are beginning to recognize this. The government in a country with a sovereign currency, like the U.S., does not depend on taxes for its revenue.

Aside from the fact that conservative family values are not about government handouts, Culbreath misses an important point that I cover in Problems With Modern Monetary Theory: A Comment on Stephanie Kelton’s "The Deficit Myth", namely that, just because a government can print money at will ( as opposed to taxation), doesn't mean there are not immediate distortions to an economy because of the money printing. They are different distortions than tax distortions but still distortions which result in a lower standard of living for all.

There is nothing conservative about MMT, it is a justification for big government spending.

As Dominick Armentano wrote in a recent comment about MMT justification for big deficits and money printing to cover it:

Now as Austrians we know that all of this is nonsense...although it does have some simple, common sense appeal to policy makers and non-Austrians. We know that that there will be inflationary distortions in specific sectors that get the money first; we know that there will be micro-economic distortions in capital markets that set up future mal-investments and make recession inevitable. We know this and a whole complex of other things. But the MMT people have not the slightest interest in any of this. The entire purpose of the exercise is to rationalize massive government spending that advances the progressive agenda of an ever-expanding crony-capitalist system. 



  1. Professor Armentano is correct. MMT will cause distortions making future recessions inevitable. He is also correct that it will successfully implement the progressive agenda which they will interpret as MMT's success despite the misery and impoverishment it creates for most people. This impoverishment always follows theft which is what MMT is.

  2. At the risk of starting a debate with Austrian fellow-travelers--where we all agree with 99% of the argument against MMT--let me pose this issue. In class, when we were debating some crank theory (an almost never-ending supply), I would always caution my students that we should always put these crank theories IN THE BEST POSSIBLE FORM. It is no intellectual accomplishment to knock over some straw-man theory. So with respect to MMT and not repeating all of the obvious problems, let me copy something that a previous commentator has contributed:
    "How is it NOT harmful to have an increase in claims of ownership on already-existing production?---i.e. more dollars chasing the same amount of resources--?"

    MMT proponents would dispute the assumptions and implications of this statement. It would not necessarily be "harmful" (they would assert) IF the additional "claims" (the new money) would give rise to additional production. The Austrian flaw (they would assert) is to assume that output is stagnant, or that an increase in one industry logically requires a decrease somewhere else. False, they would assert. If there are unemployed or under-employed resources, and IF the new money increases resource use and increases output, then the simple inflation assumptions simply don't follow...especially if the new money is modest in amount and temporary. Now all of this CAN be refuted; nonetheless, this is the "stronger" version of MMT that deserves our attention. A simple quip that more claims issued against existing output cannot bring prosperity (!) is not nearly enough to win this intellectual debate.